Now, for Bracks's balancing act

The Premier will need the skills of a trapeze artist to balance conflicting industrial, political and economic priorities, reports Darren Gray.

They were the kind of images that would make any political leader wince, but for a Victorian Labor Premier the discomfort would be particularly intense. There it was, all across the media: the butcher throwing out rotting meat, the shopkeeper pouring out melted ice-cream, the retailer binning cakes.

All of these little guys - small business people - were pouring money down the drain last week because union bans had left them without power. The power workers did not answer to the Government; they are privately employed. But their dispute was still bad political news for Steve Bracks and his team, who eventually used concerns about lack of power to a medical clinic to get the electricity back on. The union complied.

But that dispute continues - as do the Government's other industrial and political woes. The Premier is under pressure on many fronts. With the looming expiry of many enterprise bargaining agreements, a conga line of state employees is circling his office with their hands out; nurses, teachers and public servants have launched pay claims that, if granted, would make a large dent in state coffers. The pressure will intensify next week if a promised strike by teachers goes ahead.

Representatives of rail and tram companies have already left the Premier's office carrying fat contracts worth $2.3 billion over five years to keep Melbourne's trains and trams on track. The Government has been forced to back down on plans to cut a taxi program used by thousands of disabled Victorians. And unions - supposedly its core constituents and major supporters - are planning a campaign in marginal seats criticising the government's refusal to meet their claims for teachers and nurses. Victoria's economy, meanwhile, is not doing as well as it might.

The Federal Government has grasped the opportunity to stick in the knife. Campaigning in Victoria ahead of this year's federal election, Prime Minister John Howard went for the jugular this week. He claimed Victoria had a "permissive culture" towards unions that was hurting its economy and increasing industrial unrest: "If I were a Victorian, I'd be very angry that there are things happening in the state that are causing my state to fall behind the rest of the country."

Bracks vigorously rejected the claims, accusing Howard of playing politics. "It's an election year. This is a Sydney-centric Prime Minister who doesn't really care enough about Victoria to want to promote enterprise in Victoria and the Victorian economy."

But it is incontestable that, given the Bracks Government is committed to budgetary surpluses - a political necessity for any Labor administration trying to shake off the "guilty party" tag that followed the Cain-Kirner years - he faces a basket-load of headaches. How will the Premier hold it all together?

Teachers want a 30 per cent pay rise over three years, nurses a 20 per cent pay rise over 21/2 years, and public servants a 6 per cent annual pay rise.

But the Government has pledged to deliver budget surpluses of at least $100 million a year. So far it has consistently exceeded this target, with a $652 million operating surplus projected for 2003-04.

But Treasury's own estimates predict that tax revenue will fall slightly in 2004-05. On several indicators, such as economic growth, Victoria trails the nation.

Forecaster Access Economics recently predicted that Victorian growth would be 2.8 per cent this financial year, behind NSW (3.6 per cent), Queensland (4.8 per cent) and the nation (3.5 per cent).

Last month's figures on new motor vehicle sales add to the picture. New vehicle sales in Victoria were up 3.4 per cent (trend terms) on a year ago. But in Queensland they jumped 12.2 per cent and, nationally, 6.4 per cent, according to the Australian Bureau of Statistics.

Other figures reveal how Victorian goods exporters were harder hit last year than those from other states. The value of Victorian merchandise exports slumped 18 per cent or $3.8 billion in 2003, compared with 2002. In NSW, they were down $3.6 billion (16 per cent) and, in Queensland, down $2.2 billion (9.8 per cent).

What is confronting Bracks and Treasurer John Brumby is an industrial relations, politics and economics balancing act: how to deliver wage deals that limit strikes, work bans and other disruptions while keeping the budget in surplus; how to navigate a path through the negotiations without destroying the relationship between Labor and unions; and how to conclude the deals without leaving a perception that the Bracks Government is pushed around by unions.

In something of an understatement, Victorian Trades Hall Council secretary Leigh Hubbard on Wednesday described relations between unions and the Government as "fairly stretched".

By yesterday morning the VTHC executive had passed a unanimous resolution accusing Bracks of using "unproductive and inflammatory" rhetoric about unions in media comments about the disputes.

The union's campaign includes a brochure titled Secrets of the Bracks Government, to be dropped into the letterboxes of voters in several marginal electorates from next month. It says: "Inside the Victorian treasury vault lies hundreds of millions of dollars in budget surplus. This money is not the Government's - it belongs to the people of Victoria . . . This money is to provide services to the people of Victoria - yet much of it is being hoarded away".

But Bracks is holding firm. "We can't do everything," he says. "We can't offer unlimited wage increases and increase support for health and education with more teachers and more nurses and more equipment."

Hubbard believes the Government has adopted a tough approach because of warnings last year from the Auditor-General about the Victorian economy - including that expenditure growth has easily exceeded revenue growth under Bracks - and because of a determination to maintain a good economic record.

"The rhetoric of the 'guilty party' (the Liberals' advertising campaign line before the 1992 state election) runs very deep, almost so deep that you would think that they (the Bracks Government) believe it, and it wasn't true," he says.

"But there is a mantra, that they cannot survive politically if they go into the red. We understand that historical legacy."

Brumby this week defended the Government's economic record, saying Victoria's budget surplus was bigger than every other state except NSW.

"The fundamentals for Victoria, and indeed for Australia, are generally very sound," he says. "It (the state economy) is a great success story; it's been growing every year since 1991, every year consecutively. The last few years have been a very strong performance and, going forward, we are predicting real growth of more than 3 per cent per annum."

On a range of economic indicators, Victoria is outperforming other states, he says, including building approvals, population growth and wage costs. Victoria is also Australia's top venture capital destination.

It is true that there are positive economic indicators. Take net interstate migration figures, recently released by the ABS. While just 28 more people came to Victoria from interstate in 2002-03, a whopping 33,809 more arrived from overseas than left for overseas in the same period.

In jobs, the NSW and Queensland economies each created more jobs than Victoria last year.

The number of people employed in Queensland jumped by a massive 69,500 in the year to January, while in Victoria the jump was 25,100.

But at a seasonally adjusted 5.6 per cent in January, Victoria's unemployment rate was better than the national unemployment rate (5.7 per cent), Queensland's (6 per cent), South Australia's (6.5 per cent) and Tasmania's (6.4 per cent).

Brumby also seems unconcerned by Access's 2.8 per cent growth forecast for the state economy. The Victorian Treasury's latest prediction for state economic growth in 2003-04 is 3.25 per cent, and Brumby says Victoria is on track to meet it.

While economists and business leaders agree that the state economy faces some serious challenges, none interviewed were gloomy about Victoria's economic health. Mike Nahan, executive director of the Institute of Public Affairs, a right-wing think tank, says that, while the state's economic growth was currently behind the average, in recent years it had performed better than average.

"The challenge for it (the Bracks Government) is going forward. The inheritance is going, the economy is slowing, the booming housing market will come off and revenues will fall," he says.

Shadow treasurer Robert Clark offers the most negative assessment, saying Victoria is losing momentum. "GSP (gross state product) is now below the national average, and respected commentators are predicting it will remain below the national average. Victorian businesses have less confidence in the Victorian economy than they do in the national economy, and businesses rate the Victorian Government's policies as equal worst of any state government in Australia, according to the Sensis survey," he says.

But Timothy Piper, Victorian director of the Australian Industry Group, believes the State Government is "doing pretty well" economically. "It's to be expected that there's going to be a reduction from the strong economic growth we have had over the past few years, simply because of the dynamics within the economy," he says.

With the next state election more than two-and-a-half years away, the Government will be hoping that the industrial relations and economic challenges of this year will turn out to be just a mid-term speed hump, rather than the trigger for a major crash.